Papa John's Board Moves To Prevent John Schnatter From Gaining Majority Control

Papa John’s will implement a “poison pill” that aims to prevent any shareholder, including founder John Schnatter, from gaining a controlling interest in the company. The plan, which utilizes a complicated set of financial maneuvers, was announced late Sunday evening in a companypress release.

In the statement, Papa John’s said that the move is “intended to enable all Papa John’s stockholders to realize the full potential value of their investment in the company and to protect the interests of the company and its stockholders.” The release also said that the plan will afford the board of directors ample time to consider buyout offers or otherwise steer the firmin a direction that willbenefit shareholders.

“What is unusual, at least in my experience, is that the plan here is so clearly targeted to deter the actions of a particular investor,” says Robert Willens, a professor of finance at Columbia Business School, in reference to Schnatter. “I would question whether management has overstepped its bounds.”

Other companies have implemented poison pills in recent years, including Sotheby’s, Netflix and Hertz. The maneuver is normally used to preempt hostile takeovers.

The announcement, which Papa John's is officially referring to as a “limited duration stockholder rights plan,” marks the latest piece of drama at the pizza chain. On July 11,Forbesreported that Schnatter used the N-word during a role-playing exercise in May intended to prevent future public-relations incidents. Hours after that news broke, Schnatter resigned as Papa John’s chairman. Then, on July 19,Forbespublished an extensive report detailing a toxic work environment at the business, including allegations of harassment and sexually inappropriate behavior.

Even before Sunday’s news, Schnatter had a strained relationship with the Papa John’s board. The company said in a July 15 SEC filing that it would terminate an agreement with Schnatter that lets him sublease his office space at headquarters. Meanwhile, a representative for Schnatter tellsForbesthat he views the cancellation as “ineffective.” As recently as Tuesday, July 17, Schnatter was spotted inside the building.

On Monday, July 23, investment banking firm Stifel downgraded Papa John's stock to a sell, setting a 12-month target price of $38, which would represent a 26% decline over Friday's close of markets.